TIGTA: Demise of TeleFile is costing taxpayers millions

The U.S. Treasury Inspector General for Tax Administration (TIGTA) has issued a new report indicating that the IRS's decision to end its call-in tax filing program, TeleFile, has increased the financial burden on taxpayers by as much as $23.6 million.

Results of a TIGTA study disclosed that in 2006, 541,000 taxpayers who formerly phoned in their tax return information spent $23.6 million on tax preparation software.

TIGTA also discovered that 966,000 taxpayers returned to filing paper tax returns when they could no longer use TeleFile.

The IRS ended the experimental TeleFile system after the 2005 tax filing season claiming the program was costly and participation was decreasing. TeleFile was a program that allowed taxpayers to call a toll-free number and use their telephone keypad to enter information for their tax return. Forms 1040EZ, 4868, and 941 could be filed using the TeleFile system.

Only taxpayers who received a TeleFile packet from the IRS were eligible to use the system.

"Once again, the IRS has made a taxpayer service decision based on questionable data," said Inspector General J. Russell George, in a statement. "At best, the IRS may have eliminated its short-term cost of the program. Meanwhile, it has placed a financial burden on many taxpayers and slowed the growth of its objective to encourage electronic filing."

Senators Max Baucus (D-MT) and Charles Grassley (R-IA) have indicated they are considering introducing legislation that would require the IRS to reinstate TeleFile or establish a similar call-in tax return system.

"The IRS did not have the best interest of taxpayers in mind when it chose to get rid of TeleFile," said Baucus. "Instead it chose to shift costs on to the American people and increase the burden to taxpayers."